Equity Weekly. Top company and macro news

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1 Equity Research 7 April, 2017 Equity Top company and macro news Apranga: Decent sales in Q1, but pressure mounts Swedbank Economic Outlook April 2017 Trading volumes on the rise Trading volumes picked up slightly, bringing Tallinn s turnover to EUR 3.4m for the week. The most-traded stocks were Olympic Entertainment Group (-2.75% w/w) and Tallinna Kaubamaja Grupp (-8.6% w/w), both of which contributed more than EUR 1m to the week s turnover. Kaubamaja s shares went to exdividend for the year 2016 on April 5, and the company paid a dividend of 0.63 EUR per share on April 7. Kaubamaja s share price finished week at EUR 8.75, while Olympic s share price closed at EUR 1.77 on Friday. Tallink (-1.1% w/w) released statistics for March 2017 and Q on April 4. In March, the company transported 724,243 passengers (-5.2% y/y) and the number of cargo units came in at 31,974 (+17.5% y/y). The number of passenger vehicles amounted to 79,642 (-4.1% y/y). In Q1, the company transported 1,939,784 passengers (-0.7% y/y). The number of transported cargo units totaled 83,797 (+8.4% y/y) and the number of passenger vehicles came in at 217,445 (-1.8% y/y). The NASDAQ OMX Tallinn index slid to close at points on Friday (- 0.83% w/w). The NASDAQ OMX Riga index increased by 1.77% w/w to close at points on Friday. The trading activity on the NASDAQ Riga stock exchange was average. The most actively traded share was Grindeks its total weekly trading turnover of EUR 100,000 eclipsed that of the other companies. Grindeks share price rose by 9.02% w/w to finish the week at EUR Valmieras stikla šķiedra announced that it had acquired a loan of EUR 50.4m for an expansion of the US plant. Otherwise, no notable news was released by the key companies. The NASDAQ OMX Vilnius index decreased by 0.25% w/w with weekly turnover of EUR 1.689m. Siauliu Bankas share price increased by 1.35% w/w, while investors generated EUR 685,607 in turnover. April 11 will be the last day on which investors will be able to obtain free shares and EUR per share in dividends. Telia Lietuva s share price fell by 0.95% w/w after a suggestion to pay EUR 0.03 per share in dividends, while Apranga s share price rose by 2.26% w/w after a record EUR 0.16 DPS proposal. Rokiskio suris (0.00% w/w) announced that its net profit in 2016 was 2.68x higher y/y and the company offered to pay EUR 0.10 per share in dividends. A high dividend yield tempted investors to buy Amber Grid s shares, and the company s share price increased by 5.26% w/w. Klaipedos nafta finished the week with a 1.56% decline in its share price w/w. Investor Calendar: Date Issuer/Country Description Period 10 Apr Estonia Imports / Exports YoY February 10 Apr Estonia Unemployment rate March 10 Apr Latvia CPI MoM / YoY March 10 Apr Lithuania CPI MoM / YoY March Apr Latvia Unemployment rate March 11 Apr Lithuania PPI MoM / YoY March 11 Apr LHV Group Dividend ex-date Apr LHV Group Dividend record date Apr Olympic Entertainment Group Activity results, 3 months Q Apr Tallinna Kaubamaja Group Interim report, 3 months Q Apr LHV Group Dividend payment date Apr Estonia, Latvia, Lithuania Trading holiday Source: Nasdaq OMX, Bloomberg Baltic Indices Jan 22-Jan 6-Feb 21-Feb 8-Mar 23-Mar 7-Apr Baltic Benchmark OMX Riga Index value OMX Tallinn OMX Vilnius, Swedbank OMX Tallinn 1, % 3.5% OMX Riga % 6.8% OMX Vilnius % 0.9% OMX Baltic Bench % 4.0% OMX Baltic % 2.0% S&P 500 2, % 5.2% STOXX Europe % 5.2% STOXX EU Enlarged % 14.4% RTS 1, % -3.3% Top gainers: Last Close ( ) Arco Vara % Grindeks % Harju Elekter % Merko Ehitus % SAF Tehnika % Top losers: Last Close ( ) Tallinna Kaubamaja % Energijos Skirstymo Operatorius % Olympic Entertainment Group % PRFoods % Silvano Fashion Group % Most active: Last Close ( ) Siauliu Bankas % Olympic Entertainment Group % Tallinna Kaubamaja % Silvano Fashion Group % Klaipedos Nafta % Equity Research Large Corporates & Institutions Swedbank YTD Turnover ( th) Turnover ( th) , Turnover ( th) 1,456 1, April 7, 2017 Please see important disclosures at the end of this document Page 1 of 8 Report was ready at :16 and published at :16

2 Macro news Swedbank released its April 2017 economic outlook. Key bullets: Global: Signs of a considerable cyclical upturn in advanced economies. Inflation pressure increases, but remains low in many regions. Political risks remain although they have decreased somewhat. Sweden: Growth broadens as an upswing in exports is paired with the strong domestic economy. Demographic change continues to drive the development. The labour market is strong but modest wage increases slow down the rise in inflation. Public finances are solid but structural reforms neglected. Norway: Growth accelerates at the same time as the downswing in the oil sector dampens. We estimate that oil price continues to rise which lends support. The overheated housing market is a risk, but given that housing prices stay stable we expect that Norges Bank raises its policy rate in the second half of next year. Baltics: The business cycle in the Baltic economies strengthened towards the end of last year, driven primarily by household consumption and exports. There is a risk that the rising wages erode competitiveness, but we expect the strong global cycle to support exports. Markets: A tentative interest rate upswing has begun as central banks slowly retreat. Swedbank Economic Outlook - April 2017 For more information, contact: Anna Breman, Group Chief Economist, Mārtiņš Kazāks, Deputy Group Chief Economist, April 7, 2017 Please see important disclosures at the end of this document Page 2 of 8

3 Volatility Snapshot Weak U.S monthly employment data, balance sheet trimming fear from Fed minutes, and the escalation of the Syria conflict brought some volatility to the market, but the U.S market held its ground while Europe witnessed a bit more risk-off sentiment. U.S volatility initially moved higher in the week but is back to below its 20-day moving average. European volatility (V2X) has reacted a bit more to the new geopolitical risks, rising from 16.5 a week ago to 19.5 this Friday OMXB10 Index 140 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Close (ls) 1m Realized Volatility (rs) 1m Implied Volatility (rs) 0 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Close (ls) 3m Realized Volatility (rs) 3m Implied Volatility (rs) OMXB10 Index dropped almost 2% with OEG1T, SFG1T and TAL1T leading the way. Implied vols in Baltic names managed to stay unaffected by the drop in some of the share prices. Implied Volatility Overview (as of close on ) Volatility changes on Most Actively traded Options (as of close on ) YTD Implied Volatility (ATM, mid-market) Last Price Price vs Previous Week Close 1 month 3 months Eurostoxx 50 3, % 6.0% 11.4% -14.3% 16.9% -4.0% S&P 500 2, % 5.3% 8.2% -24.1% 10.9% -7.6% OMX 30 1, % 3.1% 11.2% -13.2% 15.4% -1.3% OMXB % 2.1% 18.7% -1.4% 18.6% -1.5% VIX % -11.8% Sources: Bloomberg, Swedbank AS estimates and calculations 1M ATM 1M ATM 1M 3M ATM 3M ATM 3M 3M Implied Vol Price Realized Implied ATM Imp. Realized Implied ATM Imp. divided by Vol Vol Vol Vol Vol Vol 3M Realized Vol c2 c5 c6 c7 c9 cc11 c12 c14 sortcol APG1L 1.9% 15.6% 15.5% 0.0% 14.7% 15.5% 0.0% 1.05 TAL1T -0.9% 10.8% 17.5% -1.4% 14.1% 17.0% -1.4% 1.21 TKM1T -7.3% 34.4% 18.0% -4.0% 23.9% 18.0% -2.7% 0.75 OEG1T -1.6% 13.6% 17.0% 9.7% 11.5% 16.3% 8.3% 1.41 SFG1T -0.4% 21.3% 25.8% -3.7% 24.0% 25.5% -3.8% 1.06 Sources: Bloomberg, Swedbank AS estimates and calculations. Implied vols are all mid-market Note: Published OMXB10 Index implied volatilities are computed by Swedbank and are for informational purposes only. Swedbank has not traded the index in the past nor currently plans to do so in the future. April 7, 2017 Please see important disclosures at the end of this document Page 3 of 8

4 Company News Company & expected share impact Positive Neutral Negative Decent sales in Q1, but pressure mounts Low comparison base boosts March sales Relatively good sales are unlikely to result in improved profitability Target price of EUR 2.70 and Neutral recommendation reiterated Low comparison base On April 3, the leading Lithuanian apparel retailer Apranga, released its March sales figures. Retail turnover (including VAT) increased by a hefty 11.5% y/y, to EUR 16.1m, helped by the increase in operating area (+6.3% y/y) and the increase in sales efficiency (+5% y/y, calculated as retail turnover per sqm). We argue that sales in March were helped by delayed demand from the preceding month as well as by the low comparison base as sales in March 2016 were hurt by the relatively cold and changeable weather. Apranga Recommend. ( ): Neutral Target Price ( ): 2.7 Price ( :40): 2.71 Analyst: Andrej Rodionov, CFA Tel: Zara driving growth We calculate that sales efficiency increased by around 2% y/y in Q1, which made it the fourth consecutive quarter with improving sales efficiency. We believe that this is mostly attributed to the successful sales in Zara stores, operated by Apranga, which have been the main contributor to sales growth since Q However, we expect contribution from Zara stores to sales growth to become less pronounced in H Gross margin to stay subdued We argue that relatively good sales are unlikely to result in a significantly improved profitability in In addition to the rapid wage and rent pressure, we expect the company s gross margin to stay almost unchanged at the relatively subdued level of around 45.1% compared to the average level of around 46-47% seen in We estimate that Apranga is fairly priced at a 2017e EV/EBITDA of 6.6x and a P/E of 11.8x, while a 6.1% dividend yield (EUR 0.16) looks compelling. We maintain our target price of EUR 2.70 and our Neutral recommendation. April 7, 2017 Please see important disclosures at the end of this document Page 4 of 8

5 Baltic Equity Trading Statistics Swedbank Baltic Coverage Last* Reco. Return Name GICS Sector/ Sub-Industry Country Price ( ) Target ( ) Upside/ Dow nside Reco. Release Date Reco. Issuer** M.Cap, meur 1w 1m 6m YTD 52w 3m Avg. Daily Turnover th 52w Volatility Apranga Apparel Retail LT % Neutral LT 150 2% 1% 6% 5% 5% 12 12% Baltic Horizon Real Estate EE % Buy LT 73-2% -3% -3% -4% 21 LHV Group Diversified Banks EE % Neutral LT 241-1% -1% 28% -3% 40 Linas Agro Group Agricultural Products LT % Reduce LT 103 0% 1% 2% 2% -2% 5 Merko Ehitus Construction & Engineering EE % Reduce EE 162 4% 4% 12% 3% 5% 21 18% Nordecon International Construction & Engineering EE % Buy EE 42 0% 1% 8% -2% 27% 7 Olainfarm Pharmaceuticals LV % Buy LT 134 2% 4% 13% 12% 27% 7 Olympic Entertainment Group Casinos & Gaming EE % Neutral EE 272-3% -6% -2% -1% -8% % Siauliu Bankas Diversified Banks LT % Strong Buy LT 198 1% 0% 44% 17% 89% % Silvano Fashion Group Apparel Retail EE % Buy LT 105-2% 6% 40% -3% 91% % Tallink Marine EE % Strong Buy EE 635-1% -1% 3% 3% 7% 90 17% Tallinna Kaubamaja Food Retail EE % Neutral EE 358-9% -6% 17% 6% 22% 71 18% Tallinna Vesi Water Utilities EE % Sell EE 280-1% 1% 1% 1% -6% 50 12% *Date for prices: 7 April :40 Source: Swedbank LC&I, Bloomberg ** EE=Swedbank AS (Estonia), LT=Swedbank AB (Lithuania) Selection of Others Last* Return Price M.Cap, Name GICS Sector/ Sub-Industry Country ( ) meur 1w 1m 6m YTD 52w Arco Vara Diversified Real Estate Activi EE % 14% 32% 17% 33% 5 Baltika Apparel, Accessories & Luxury EE % 3% -1% 15% 14% 5 37% Ekspress Grupp Publishing EE % 2% 0% 0% 2% 2 Energijos Skirstymo Operatorius Gas Utilities LT % -4% 3% 2% 0% 24 Grigiskes Paper Products LT % -1% -6% -4% -3% 8 15% Grindeks Pharmaceuticals LV % 10% 29% 21% 8% 13 28% Harju Elekter Electrical Components & Equipm EE % 16% 55% 40% 54% 26 20% Invalda Multi-Sector Holdings LT % 6% 6% 10% 22% 1 Klaipedos Nafta Oil & Gas Storage & Transporta LT % -7% -24% -18% 2% 20 28% Latvian Shipping Company Oil & Gas Storage & Transporta LV % 2% -5% 0% 7% 2 PRFoods Packaged Foods & Meats EE % -1% 5% 6% 0% 9 25% Pieno Zvaigzdes Packaged Foods & Meats LT % 3% 3% -1% 4% 5 Panevezio Statybos Trestas Construction & Engineering LT % 0% 1% 2% 6% 4 Rokishkio Suris Packaged Foods & Meats LT % 9% 24% 5% 37% 3 SAF Tehnika Communications Equipment LV % 8% 18% 16% 26% 5 Telia Lietuva Integrated Telecommunication S LT % -1% 2% 1% -2% 13 11% Zemaitijos Pienas Packaged Foods & Meats LT % 2% 35% 18% 77% 2 3m avg. Daily Turnover th AVERAGE (both groups) % 2% 12% 6% 19% % MEDIAN (both groups) % 1% 6% 2% 7% % 52w Volatility *Date for prices: 7 April :40

6 Baltic Equity Fundamentals Swedbank Baltic Coverage Div. Div. Net Bloomberg EV P/E P/E P/E P/BV P/BV P/BV P/S P/S P/S EV/ EV/ DPS Yield Yield EBITDA Operating Debt to Name ticker meur F 2018F F 2018F F 2018F EBITDA Sales ROE ROA EUR F margin margin EBITDA Apranga APG1L LH % 19% % 6% 11% 8% -0.3 Baltic Horizon NHCBHFFT ET nm 11% 5% % 9% 76% 76% 9.9 LHV Group LHV1T ET % % 3% Linas Agro Group LNA1L LH % 2% % 1% 3% 1% 5.2 Merko Ehitus MRK1T ET % 3% % 5% 4% 3% 1.1 Nordecon International NCN1T ET % 5% % 5% 3% 2% 1.6 Olainfarm OLF1R LR % 7% % 6% 21% 16% 1.0 Olympic Entertainment Group OEG1T ET % 23% % 8% 19% 13% -1.0 Siauliu Bankas SAB1L LH % % 0% Silvano Fashion Group SFG1T ET % 32% % 5% 34% 30% -1.1 Tallink TAL1T ET 1, % 5% % 6% 16% 8% 3.2 Tallinna Kaubamaja TKM1T ET % 8% % 6% 8% 6% 1.5 Tallinna Vesi TVEAT ET % 12% % 6% 53% 42% 2.0 Source: Swedbank LC&I, Bloomberg Selection of Others Net Bloomberg EV EV/ EV/ DPS Div. EBITDA Operating Debt to Name ticker meur P/E P/BV P/S EBITDA Sales ROE ROA EUR Yield margin margin EBITDA Arco Vara ARC1T ET % -3% 6% 5% 23.5 Baltika BLT1T ET % 1% 4% 2% 3.2 Ekspress Grupp EEG1T ET % 6% % 14% 8% 1.8 Energijos Skirstymo Operatorius ESO1L LH Grigiskes GRG1L LH % 4% % 15% 5% 2.9 Grindeks GRD1R LR % 2% 18% 12% 1.3 Harju Elekter HAE1T ET % 5% % 8% 5% -0.3 Invalda IVL1L LH % 9% 68% 59% -1.6 Klaipedos Nafta KNF1L LH % 6% 27% 15% -0.4 Latvian Shipping Company LSC1R LR PRFoods PRF1T ET % 2% 6% 4% 0.1 Pieno Zvaigzdes PZV1L LH % 3% % 8% 3% 2.1 Panevezio Statybos Trestas PTR1L LH % 3% 3% 2% -3.4 Rokishkio Suris RSU1L LH % 3% 6% 2% 1.1 SAF Tehnika SAF1R LR % 7% 10% 7% -4.2 Telia Lietuva TEL1L LH % 10% % 32% 14% 1.5 Zemaitijos Pienas ZMP1L LH AVERAGE (both groups) % 7% % 5% 18% 14% 2.0 MEDIAN (both groups) % 5% % 6% 11% 7% 1.2

7 Background Information: Recommendation structure Large Corporations & Institutions recommendation structure consists of six recommendations: Buy, Accumulate, Hold, Reduce, Sell and Avoid. The recommendations are based on an absolute return for the security 12 months forward. The absolute return includes share price appreciation and dividend yield combined. The recommendations for the securities mentioned in this report are based on risk and return considerations. The higher the risk category of the investment, the higher the required return. For equity investments, returns are defined as capital appreciation and dividends received over the investment horizon of 12 months forward. The expected capital appreciation is the ratio of a stock s target price over the current price. A company risk rating depends on its stock price volatility, liquidity and business outlook. The target price depends on a company s fundamentals as well as the market valuation of peer stocks, and can be changed at any time if the relevant changes occur within a company/market perception of the peer group. Buy, accumulate, hold, reduce, sell and avoid recommendations may be used in this report. The table below presents the relationship between recommendations and target prices compared to risk level of the stock. These are indicative ranges and actual recommendations may deviate from the indications if other relevant issues are considered. Strong Buy (SB) The absolute return is estimated to be in excess of 15% Buy (B) The absolute return is estimated to be between 5% and 25% Neutral (N) The absolute return is estimated to be between 0% and 10% Reduce (R) The absolute return is estimated to be between 5% and -10% Sell (S) The absolute return is estimated to be less than -5% Share price target Our expectations of the absolute return on a 12-month horizon The recommendation by Large Corporations & Institutions Equity Research department is based on a variety of standard valuation models. However, the base for the calculation of the target price is our DCF model (DCF = discounted cash flow) with the exception of financial and investment companies. The DCF model discounts future cash flow at present value. In preparation of this report different valuation methods have been used, including, but not limited to, discounted free cash-flow and comparative analysis. The selection of methods depends on the industry, the company, the nature of the stock and other circumstances. The target price (previous fair value) takes into account the DCF value, the relative valuation of the share versus others peers (national or international) and news that can have a positive or negative effect on the share price. Relative and absolute multiples that we consider are: EV/EBITDA, EV/EBIT, PE, PEG and Net Asset models for companies with liquid markets for their assets and other industry specific ratios when available. Break-up valuation models are also sometimes considered. For Swedbank s previous recommendations please follow the link: Recommendations by the No of shares (*) Part of total Strong Buy 2 (1) 15% Buy 4 (1) 31% Reduce 15% Sell 8% Strong Buy 15% Buy 31% Neutral 4 (2) 31% Reduce 2 (1) 15% Sell 1 (1) 8% * Recommendations issued by Swedbank AS Neutral 31% April 7, 2017 Please see important disclosures at the end of this document Page 7 of 8

8 Information to the customer Issuer and recipients This research report contains previously published research (or excerpts from it) and recommendations that have been produced by two different Swedbank Group entities: Swedbank AS, under the supervision of the Estonian Financial Supervision Authority (Finantsinspektsioon), has issued research on: Merko Ehitus, Nordecon International, Olympic Entertainment Group, Tallink, Tallinna Kaubamaja, Tallinna Vesi; Swedbank AB, under the supervision of the Bank of Lithuania, has issued research on: Apranga, Baltic Horizon, Ekspress Grupp, LHV Group, Linas Agro Group, Olainfarm, Siauliu Bankas, Silvano Fashion Group. For full research on the relevant issuers, please contact your salesperson or the covering analyst. This report by Large Corporations & Institutions Equity Research is disseminated by Swedbank AS ( Swedbank ). Swedbank is under the supervision of the Estonian Financial Supervision Authority (Finantsinspektsioon). 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